Save Article

Oil-Price Rises Have Contributed
To Global Imbalances, Study Says

WASHINGTON -- The surge in oil prices has contributed to global imbalances and oil exporting countries should join the U.S., Asia and Europe in fixing those imbalances, a Treasury staff study says.

The study notes that the U.S.'s oil-import bill rose to $252 billion in 2005 from $104 billion in 2002. In the same period, Middle East countries' current account surplus -- the balance on trade and investment income with other countries -- rose to $218 billion from $30 billion. Saudi Arabia's surplus has reached 30% of gross domestic product.

Oil-price spikes have "relatively small, in some cases negligible, effects on global imbalances," write study authors T. Ashby McCown, L. Christopher Plantier and John Weeks. "In this case, however, the price increase has been sustained, and the impact on global imbalances has been significant."

Most of the focus at multilateral meetings between the U.S. and other countries on economic matters has been on three sources of imbalances: China's fixed-exchange rate; the U.S. budget deficit; and slow growth in Europe. The study, which doesn't represent official Treasury policy, says the rising surpluses of oil exporters must also be part of the debate. "Oil exporters will need to be part of the global adjustment process, just as emerging Asia, the United States, Japan and Europe need to play a role," the study says.

The correct policy action depends on the nature of the oil exporter, the study says. Some poorer exporters will spend most of their increased revenue on imports. Some countries with aging oil reserves like Norway, Russia and Oman, should spend their increased revenue "evenly over time." Large exporters should save money and pay down debt to protect against future price drops. If prices stay high, they should invest in projects with "high social rates of return in order to strengthen the economy, raise standards of living and assist with global adjustment of external imbalances."

The study offers little insight into how oil exporters' revenues are recycled into the financial markets. It cites a Bank for International Settlements study that could account for only 30% of the estimated increase in revenue of Organization of Petroleum Exporting Countries since 1999. Of that 30%, two thirds have gone into major banks, and the remainder into a mixture of U.S. Treasurys and corporate assets, and to a lesser extent, German assets.

U.S. Treasury data indicate that between January 2003 and last September, "oil exporting countries made net purchases of $158 billion of long-term U.S. securities...and had net acquisitions of $113 billion of short-term U.S. securities and banking liabilities."

They may have also purchased such assets "indirectly through foreign intermediaries...Anecdotal evidence and historical experience suggest that oil-producer investments are also going into construction loans, regional stock markets, private-equity funds, and possibly hedge funds located outside the United States, which are difficult to track."